OECD Economic Surveys: India

OECD’s periodic surveys of the Indian economy. Each edition surveys the major challenges faced by the country, evaluates the short-term outlook, and makes specific policy recommendations. Special chapters take a more detailed look at specific challenges. Extensive statistical information is included in charts and graphs.

This Survey was prepared in the Economics Department by Isabelle Joumard and Urban Sila, under the supervision of Piritta Sorsa. Statistical research assistance was provided by Hermes Morgavi and Annamaria Tuske with general administrative assistance provided by Anthony Bolton. The Survey also benefitted from contributions at different stages by Pierre-Richard Agénor, Ankit Kumar, Lalita Som, Arnaud Daymard, Jan Mares, Ankit Mishra, Yuvraj Pathak, Mathilde Didier, Cioa Guimaraes, Marie Rabate and Gen Tang. The Survey was discussed at a meeting of the Economic and Development Review Committee on 6 October 2014 and is published on the responsibility of the Secretary General of the OECD.

This annex reviews policy recommendations from previous Surveys. They cover the following areas: public finance, subsidies, tax system, education, labour market, product and service markets (including public enterprises), financial reform, and infrastructure. Each recommendation is followed by a note of actions taken since the 2011 Survey. Recommendations that are new in this Survey are listed in the relevant chapter.

The manufacturing sector has contributed little to income and its share in total merchandise exports has been declining, as economic growth has been primarily led by services. Manufacturing has not brought much new employment, and most of the recent rise in employment has been in informal labour, where workers are not covered by social security arrangements.Productivity of the manufacturing sector is low, partly because the relatively small size of manufacturing firms makes it difficult to exploit economies of scale. Despite abundant, low-skilled and relatively cheap labour, Indian manufacturing is surprisingly capital and skill intensive. Furthermore, firms have little incentive to employ and grow, since by staying small they can avoid taxes and complex labour regulations. Land acquisition is slow, companies face frequent power outages and transport infrastructure is below par. This is especially harmful as manufacturing is highly reliant on well-functioning infrastructure.Stronger manufacturing would increase productivity and make growth more inclusive, while contributing to improved current account balance. In particular, India should aim for more formal jobs, as these tend to be the most secure and of highest productivity.

India has narrowed gender differences in health and education, but gaps in economic participation remain large despite high economic growth over the past decade. The reasons are complex: family status increases if women stay home, housework has become more attractive than poorly paid market work as husband’s incomes have risen; and safety concerns and poor infrastructure keep women from market work. Nevertheless, high unemployment among educated women and revealed preference for work in surveys indicate that many women would work if conditions improved. Specific gender policies will be needed to enlarge economic opportunities for women (World Bank, 2012, Duflo 2012). This chapter analyses the determinants of low female economic participation and recommends policies for raising it. The chapter also estimates long-term growth effects of raising participation with selected policies.

With India’s low life expectancy largely reflecting deaths from preventable diseases, the most significant gains in health would come from population-wide preventive measures. Access to public health care services varies substantially, resulting in many people turning to private-sector providers who mainly serve those who can pay. While government has scaled up public health services, more health professionals and public health care spending will be needed to ensure broad and adequate health-care coverage. Priority should be given to high impact primary health care services. For more resources to translate into better services, the management of public health care services needs to improve. The private sector can be drawn upon more extensively, but should also be obliged to meet basic quality standards.